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question 6 Stock A has expected return of 26% and volatility 50%. Stock B has...

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Accounting

question 6

Stock A has expected return of 26% and volatility 50%. Stock B has expected return of 7% and volatility 30%. The two stocks are perfectly negatively correlated (i.e., correlation coefficient of -1).

a. Calculate the portfolio weights that remove all risk (i.e., the resulting portfolio must have a volatility of zero).

b. If there are no arbitrage opportunities, what is the risk-free rate of interest in this economy? (If you did not manage to provide a numerical answer in point a, explain briefly in words)

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